Multi generational investing – Idea #1 and Idea #2

Pick a big idea from another discipline than a remote idea from your own discipline.

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You can significantly increase your opportunity cost, reduce risk profile for multi-generational investing by expanding your horizons beyond Indian BSE and NSE. That could also mean selecting Nestle Thailand at 18 PE over Nestle India at 50 PE ( underperformed Sensex over the past 10 years). Recently read how Sanjoy Bhattacharya lost to Fixed Deposits over the past 10 years of investment in Infosys. The mission in this series, then is to pick wonderful companies at a wonderful prices and practice assiduity for next 20 years. That’s right we’ll raise the bar on wonderful companies at fair prices.

My goal in this chain of posts is to pick easily identifiable ideas, which do not require research other than reading 5 years of annual reports, way cheaper than Indian blue chips, either on PE basis or dividend yield with high probability, bordering on certainty to be around for another 100 years. Companies like P&G, Nestle and Unilever. With exuberance in Indian top tier you may have to hold blue chips for 15+ years to outperform select mid caps. While mid caps offer value, blue chips are not worthy of investment given the opportunity cost.How can you invest

Through Kotak Securities (I am not being paid any commission from Kotak), there may be more brokers out there. Any Indian national can invest in following 24 stock exchanges, through Saxo Capital/Kotak securities. This service of investing in International Equities through Kotak Securities is only for individuals. Currently it is not available for Partnership Firms, HUF, Trusts, NRIs and Corporates.

http://www.kotaksecurities.com/internationaleq/faqs.htmIdeasFinding these ideas have usually taken me less than 1/2 a day. Simply jump to the country exchange, search for top 10 companies or their franchises, like P&G, L’oreal, Coke. Cognizing that they are better than most blue chips listed in India at the price point and also more stable than mid caps for very long horizon, I will list them over next few years.I have about 5-6 ideas currently in which I am considering investing for myself. First two are presented below.

Idea #1Mentioned in my previous post – Steamships Trading Company. It is listed on Australia Stock Exchange which any Indian national can buy. From the stable of a 200 year old business group, parent owns Cathay Pacific, Coca Cola bottlers, a very significant portfolio of property in Hong Kong. Any time is fine to invest, when you think Gold, Copper has bottomed out, will be an ideal moment. Not many companies pay 5% dividend yield that grow at 15-20% and are still available at 8 PE with conglomerate and monopoly characteristics. In this case the country PNG is considered remote/small cap by Fund Managers. Cheers to that !

Coca Cola bottler for South Thailand. Not sure yet, how an Indian national would go about buying this. Available at 17 times earnings and similar growth rate as top tier Indian MNCs, and equivalent prospects without the price tag. Covers 20% of Thailand territory for exclusive bottling and distribution licence.

Raj ji, please remove the Photoquip name from your list. Because Soni's are very clear that all the company is their own fiefdom and they are entitled to siphon-off money from the company. They treat Photoquip as a Private Limited Compnay, although it is on BSE. So other than Soni's in Photoquip stand no chance at all !

Here is a beautiful fact from the Elite of the elite in corporate world. Its all about making money and no morality.———————————————————-

In April 2011, Unilever was fined 104m euros by the European Commission for establishing a price-fixing cartel in Europe along with P&G, who was fined 211.2m euros, and Henkel (not fined). Though the fine was set higher at first, it was discounted by 10% after Unilever and P&G admitted running the cartel. As the provider of the tip-off leading to investigations, Henkel was not fined.——————————————————-

Amit ji,Stealing from consumer is the essence of Profit in corporate world. But in listed and in unlisted companies, they share it out equitably. In Photoquip, the intent is clear – only the Malik (owner) will Eat It All, others will starve ! That's somewhat strange for a listed firm !

Appreciate your efforts in letting us know about “potential multibaggers” across the globe.Good initiative.

Coming back to indian consumer stocks,what is your openion about Mirza international.If Relaxo can reach a market capitalisation around 1000 cr (which you have predicted 2-3 years back)Why MIRZA cannot enjoy the same.

They are much better position in terms of brand,business & margins.Only differnce is that they not selling much in india.And growth looks good and quite possible once they are decided to scale the business in india.

Out of 6000 companies on BSE about 5000 are not worth looking at. We know these and we are better off booking loss in failed ventures and moving on in life than flogging a horse. In my opinion, rather than fighting and fixing corrupt people, our time will be better spent with pleasant and agreeable people.

Being lax as an invest on debt standards can result in complete mess. Hence we wont be able to give it much portfolio weight. Its interest coverage is a tight rope walk. In fact I don't feel very good about Relaxo at this point either, now that all reports are comparing it with Bata.

A lot of brainpower and intelligence is applied in stocks in India which has resulted in obvious bargains disappear. With proliferation of brands, mediocre companies will not stand chance.

That implies either paying premium or looking elsewhere or waiting for a fat pitch to be delivered.

Coming back, MIRZA can enjoy the same, but opportunity cost is higher. Idea is to raise the opportunity cost by searching for better and better companies.

Also, I don't want to mention Zylog type of stocks with are debt laden as it may result in loss to others.

My goal has changed, it is to buy and mention stocks that will definitely win over 10-20 years, this unfortunately excludes all companies with significant debt, all banks and most of small caps.

Intention and self belief of promoters and simultaneous creation of an organisational infrastructure for wealth creation sets apart the cream of promoters and the second rung. Infosys is a live example.

Identifying this cream at right time (Infancy) can only give we investors mind boggling return over 10-20 yrs. I fully endorse Amit's view of avoiding and fixing the corrupt people.

would request the expertise of Amit for identifying wealth creators. In between we may notice blips but we need to move on…… for wealth creation for all the buddies.

Such a Simple Idea: Same piece of Machinery will not become more expensive than Land over time.

How we can use it.

Lots of NBFCs are offering Vehicle Finance, needless to say they have done well, eg: Shriram Finance. In short term many will do well. India is not yet saturated with vehicles, nor households with cars and automobiles. Therefore scope is immense. More than half of Indians do not have a Bank Account either.

Without FMCG valuations you are getting FMCG growth in India. But with Finance companies on leverage of 6-8 times, there are myriad of ways to go to hell and bankruptcy.

Ceteris Paribus, which company should you choose. Assuming companies with similar credentials, similar profile, ranking in an industry, appraisal system, lending discipline. One that intends to lend to Houseowners or one that intends to lend to Truck owners.

We can visualize that houses will be worth crores, then 10s of crores. I am not so sure with Trucks or cars with the rate of technological innovation. What it implies is that if housing finance industry in 2013 is X times the size of Vehicle Finance industry. It will be 10-20X times of Vehicle Finance industry over long term.

Munger says, we have a three piles, Yes, No, Too Hard. 99% things are in Too Hard and No pile. We keep saying no to everything, once in a while, i.e. once a year or two we like something and buy it.

Same goes for all winners, big bets, infrequent bets. By Big I dont mean 40% of portfolio anymore. The rate at which things are changing, its best to diversify to 15-20 holdings and not bet more than 6-10% on any single idea.

It does feel like a cant-miss-opportunity but there is no such thing, trust me. There are 100s of companies world over that can grow revenues at 15-20% and but no company that can be predicted to grow revenues at 30% for long term as of today. Stock price however, is a different beast which makes the game interesting.

It will be hard to pick another 3000 bagger but great companies for investors are in those industries which have usually less than 5 player taking up 95% of revenues.

There is a reason why I mentioned Steamship Trading Company as idea #1. It not only has a niche or moat but an ocean around it. Only 2-3% of Land in PNG can be leased, rest 97% is with tribals. So, land laws do not make it possible for competition to assail the niche by building hotels or malls. Country risk exists.

But what abt replacements? Depreciation is the devils advocate here. Trucks might have to be replaced 3 times in 3 decade, leave cars and bikes it will surely give us a higher number, we cant say the same for a House. Unlike Americans, Indians don't change their homes frequently. For most its their one time investment. So addressable opportunity for repeat customer is huge in Auto finance than housing finance ? So if saturation for vehicles might take longer time than predicted.

The Next Great Oil Technology: The industry is refocusing on another older technology that could lead to a new wave of oil production. In fact, it could lead to more oil output than fracking.It's called enhanced oil recovery (EOR) — a process of pumping carbon dioxide (CO2) into existing oil wells. The CO2 acts as a sort of lubricant for crude oil, allowing it to slip up and out of rock formations, then to be pumped fully to the surface.Oil companies now have new and increasingly common technology known as de-watering. This not only makes the waterlogged oil from enhanced recovery workable, but also creates clean water that can be used for agricultural use or even human consumption.CO2 pumping is going to be even bigger than fracking when it comes to getting more oil out of the ground. It doesn't necessarily replace fracking — but like past transformation of oil drilling, it's just another big step in getting more of it out of the ground. It essentially releases oil that had been inaccessible in existing wells, extending the wells' productivity

Initially BtoB segment is very active. Participating aggressively in International exhibitions on Lights. Most important in all metros they participated in Lights India 2012 Exhibitions. Some excerpts :. Photoquip, a leader in the photography lighting sector, picked Light India as a platform to announce their entry into the Indian LED industry by launching the brand “Corvi”, Mr Vimal Soni, Director of Corvi, said: “We met traders and corporates that were keen on our patented LED products. Our participation at Light India has enabled us to build business contacts and we have also made some lucrative business deals

the reason I am asking this is that, unlike photography lights, the LED lights are going to be a mass-market product which needs pro-actives sales and attractive pricing, which is unlike premium pricing-niche market model of elinchrom. So unless they have a mass market playing mind-set, it wont work with a niche market mid-set.

Amit ji,It may be getting into micro-management as a small investor, but….If Corvi is just at-par in LED light pricing, then they wont succeed ! they pay their people much less than Philips, then they should price their products competitively. LED lights will be a 4000 crores market by 2015 and a 10% share in that would make a company 400 crores. But “that's easier said than done.” Pricing would be key for an equally good quality product but having lesser of a brand name (i.e. Corvi vs. Philips).FILA too is into this pricing dilemma ! (mid priced Bata on one hand and Premium Reebok etc. on the other- can't match any of them) and hence sales are dragging !Cera is good, it should ride on the housing market construction boom. But, may be. at 20 PE it's almost fully priced !

In my opinion FILA is third rate product without any quality. I have no hesitation in adding that their future is doomed. Wilson, Polar Heart Rate monitor, Johnson Health Tech could do something for Cravatex.

CERA – I personally find it very very cheap at 15PE (36-40 EPS). Again its a matter of opinion keeping eye on future and competitive landscape. Think of how many people want to enter this toilet business. Even Philips does not have 25% market share in lighting which Cera has in sanitaryware. So, I expect 10 bags from it by 2023.

Corvi – We don't know what will happen in future. In terms of design they score over 90% of brands including Wipro.

Product range for the Corvi is rather limited and they are unable to offer full platter !!! They will have to move faster for offering the entire portfolio. As entire marketing strategy gets focussed on LED lights, it will be advantageous to Photoquip as opposed to Wipro or Phillips which are multi-division and multi-product company. For Photoquip it's “perform or perish” situation. This has nothing to do with their investor-friendly ethics?

For FILA Batras of Cravatex have the rights in North Africa and Middle East as well. I have seen the Dubai (middle east) and Cairo (North Africa) FILA stores that are located within buys Malls like Dubai Mall and City star Mall (Cairo). Not a single person is inside the store buying a FILA item , while rest of the mall and food-court is booming with people and young people. So, FILA is doomed for Cravatex !Not to talk about their Inorbit Mall FILA shop next to Lifestyle, that FILA shop is always empty !

In any case parents of FILA company in Italy is not investing any money into making this brand more wanting among users – no big tennis players or gymnast or athlete is endorsing this brand world wide because parents of FILA just want to suck out all the money from franchise fees from the likes of Cravatex etc.

Looking for your advice on Indiabulls.Finally, IHFL is going to be listed next week. Lot of positive developments happened over the last three months as the company has completed reverse merger to form IHFL.

ROE bludgeoned to 25%+ levels.

Applied for Banking Licence (though not so imp.)

Very Strong results with net profit increasing by 31% YOY

Imminent Credit ratings upgrade

6 rs Interim dividend declared

Company projecting to grow at 20-25% CAGR minimum for next few years..

The Question here is Why cant we embrace IHFL instead of GRUH/REPCO ? Agree that these have more earnings visibility for the next 6-7 years atleast and also the smaller base but still they are quoting very expensive in all parameters.. IHFL is maintaining 50% dividend payout ratio as well. All these things are coming at less than 7 PE at cmp. This can really achieve 15ttm PE in 2 years if the company performance keeps improving/atleast being maintained the same way it has been for the last two years…

We can buy more than one and do well. Repco, Indiabulls, Canfin. No housing company is going to do extraordinary well and none super bad. They will all deliver 20%ish returns.

If NPAs go up, just sell. Its a tug of war between competing forces of High Growth, High NIM, Low NPA. Getting all three is not possible, only some of the time, not all of the time, when others figure out the game.

Lending discipline and conservative management is of paramount importance, not PE ratios in financial sector

Why there have been no updates from you from long time ? What is your current opinion on the Private Banks, HFC's and NBFC sectors in India. Any specific value buys that you can suggest after this market mayhem?

I have invested in infinite at 150 levels.. so what would be your suggestion to me ??? to exit in 120's and shift my capital to any other or hold this for 2-3 yrs. How would you rate the company for long term..

You're right Rohit. I came to same conclusion after going through a few bloggers and others who met/visited him. Accidentally got to read about it as they own a burger chain.

I accidentally found while studying Burger Chains. There are atleast half a dozen burger chains, which prepare gourmet burgers, way better than McDonalds, founded around the same time as McDonalds yet 1/50th the size. These are highly reputed chains, with three generations of family backing yet are only in parts of US or other parts of the world have not yet gone global.

In this age of specialisation, where specialised products are walloping generals – Steak N Shake is one where Biglari owns 100% of it.

One such company that stands out is Burger Fuel (neither cheap burger nor stock) is Burger Fuel (60% more expensive and definitely Gourmet Burgers than McDonalds or Burger King) from 1 country story to 7 countries in 5 years.

IMO it can't become profitable fast. If they sell to institutions, profits will be negligible – with a probability of bad debts, if intention is to sell to individuals via demand pull, it requires a strong brand – that takes years to build. Just building brand for now and making losses.

Hi amit,Have you studied Singer India? This guy is a great turnaround story, officially came out of BIFR earlier this year, is debt free and generating good cash flows. Yesterday, it announced that they would give their maiden dividend this year. I was waiting for this announcement. Any views on this?P.S: I am invested here

Hi, Not very sure. Singer is a legendary brand. Sewing Machines have now become computers, hence difficult to predict. Singer Pakistan is 10 times bigger than Singer India, potential exists. In India they have less than 25% market share. Good luck

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Amit Arora

B.Com(Hons) Gold Medalist - Delhi University, MBA.

Served United Nations between 2001-2006 in Europe.

Since 2007 consultant for Inland Revenue, Ministry of Economic Development, Ministry of Social Development, Ministry of Justice, Ministry of Business Innovation and Employment (NZ Govt. Organisations).